An investigation of setup instability in non-stationary stochastic inventory systems

Abstract

In stochastic inventory systems unfolding uncertainties in demand lead to the revision of earlier replenishment plans which in turn results in an instability or so-called system nervousness. In this paper, we provide the grounds for measuring system nervousness in non-stationary demand environments, and gauge the stability and the cost performances of ( R, S) and ( s, S) inventory policies. Our results reveal that, both the stability and the cost performance of inventory policies are affected by the demand pattern as well as the cost parameters, and the ( R, S) policy has the potential to replace the cost-optimal ( s, S) policy for systems with limited flexibility.